Budget 2017: Expectations and Wishlist post Demonetization

Yogesh Singh

Jan 12, 2017 10:33 IST

Budget 2017-18: Overview

Post demonetization, the Union budget 2017 is going to be a litmus test for this government. Budget expectations are running high and have created a buzz in entire country. Budget 2017 is going to be even more important for common people because the financial year 2016 has ended on a heavy note with the demonetization of high value currency notes on November 8.

This has impacted almost everything from corporate to common man in Indian economy. It is expected to lower GDP of the last quarter of Indian economy. And there are expectations that there will be lack of cash supply in the markets. All these cumulative impacts have shaped the expectations of corporate, small and medium industries and common man from the current budget.

Budget 2017 Expectations:

The budget 2017-18 will be presented on first day of February. It will see the another big change which is the Goods and Services Tax. This expected change in budget 2017-18 has caused so much of curiosity in minds of people that how it will shape the new tax slabs. These two changes have modified the people’ expectations from the government.

Apart from these changes, people are eagerly waiting for Budget 2017 with all their expections. We have analyzed the major changes and expectations from budget 2017 below:

Clarity on GST

The structure of the goods and services tax (GST) has been announced. Many industries are waiting to see the how this tax will be applied to different industries. So there is an expectation of clarification on the abatement scheme. There is an expectation from the budget is that whether credit for input tax would be allowed by the government if the composition scheme has been availed by developers. There are also expectations about government’s credit allowance for consumer state and developer state. Another expectation among people is to see the clarity about revenue-neutral rate (RNR) in the budget.

Income Tax Expectations

The previous budget was expected to raise the tax exemption bar from the current level of Rs. 2.5 lakhs to 3 lakhs per annum. This change could not be carried out in the last budget. So it is expected to be announced in 2017. Further, the demonetization did inflict grievances and pain upon the common man, due to this, the expectation of a raise in tax exemption rate is ripe. Another expectation is a reduction in tax rates that is presently at 10 per cent for incomes above Rs. 2.5 lakhs, 20 per cent for income above Rs 5 lakh and 30 per cent for income above Rs 10 lakh.

Income Tax slab rate expected from Union Budget 2017-18

Taxable Income

Expected Tax Rate

Upto Rs. 400000

Nil

Between Rs. 400000-500000

10% on the total income exceeding Rs.400000

Between Rs. 500001-1000000

20% on the total income exceeding Rs.500000

Above Rs. 1000000

30% on the total income exceeding Rs.1000000

While presenting the Budget, Finance Minister Arun Jaitley would be expected to consider widening the individual tax slab. The continuous rise in the cost of living is a reason for raising the exemption limit at the present. Currently, the exemption limit is Rs 2.5 lakhs. Under 80C, presently, the deduction in respect of various investments is upto Rs 1.5 Lakh. A corresponding increase in the limit to Rs 2 lakhs would be attractive to boost savings.

Corporate Tax ExpectationsThe Confederation of Indian Industry (CII) has suggested that the corporate tax rate should be brought down to 18 percent in the upcoming. Any such corporate tax rate reduction to 18 percent will bring India in line with the most attractive international destinations such as Sri Lanka, UK, Singapore, and Turkey. The drop in corporate tax would send a powerful message to Indian industry and global investors that India is an attractive investment destination and would be a huge enabler for Make in India.

Excise and Custom Duties

CII has also called for status quo on excise and customs duties. CII has recommended continuation of 10 per cent rate of customs duty for the year 2017-18 to provide protection to the indigenous industry. It will help to ameliorate the sufferings of the indigenous industry from certain disadvantages like a higher rate of interest and power. The industry body has also recommended that the excise duty in the country be kept at 12.5 per cent until the Goods and Services Tax (GST) is implemented.

Welfare benefit measuresDemonetization has enhanced the pressure on the union government by, particularly, pointing at the difficulties faced by the poor. This puts the government in an urgent need to devise policies that benefit the poor. This need is already reflected in the Pradhan Mantri Garib Kalyan Yojana that was announced by Prime Minister Narendra Modi on November 29. Apart from it, people have expectations to see a number of welfare measures and pro-poor schemes in the budget which could follow a surge in social spending expenditures.

Incentivizing Digital PaymentsAfter the demonetization, the cashless economy has taken center stage as a consequence of demonetization. The government has already taken a number of initiatives to encourage electronic payments such as service tax on payments made through credit and debit cards up to Rs. 2000 have been removed. Due to the trend of incentivizing cashless transactions, expectations about a number of sops encouraging e-payments in the 2017 budget would be grown.

Budget Vehicle BillThe Government will present the Motor Vehicles (Amendment) Bill with the union which proposes heavy penalties for violation of traffic norms in the upcoming Budget session. The Motor Vehicles (Amendment) Bill 2016 advocates harsh penalties up to Rs 10,000 fine for drinking and driving and Rs 2 lakh compensation for hit-and-run cases. The Bill also has compensatory provision up to Rs 10 lakh in the case of road fatality. The other provisions also include that the owner or guardian will be deemed guilty in the case of road offense by juveniles and registration of the vehicle will be canceled. The proposal of this bill has also grown the expectations of the people from the Union budget 2017.

Clarity on Pradhan Mantri Awas Yojana

The government recently announced that interest rates of 3% would be applicable on loans of up to Rs 12 lakh and 4% on loans of up to Rs 9 lakh, under the Pradhan Mantri Awas Yojana (PMAY). From the budget, more clarity can be expected on the actual definition of beneficiaries who can avail of these benefits.

Expectation of higher tax saving on housing loan and house insurance premiumsThe government is expected to increase the tax deduction limit for housing loans, especially for buyers in metropolitan cities. The current limit of INR 2 lakh seems insignificant sizes in cities like Mumbai, where the price of most houses is INR 1Cr and above.

Another expectation from the budget is tax concessions on house insurance premiums. This could be introduced to encourage users to insure their homes.

There are other two major changes which will be reflected in the Union Budget 2017.

First, A change in the colonial era tradition- The custom of passing the budget on the last working day of February was started by the British administration in India. The Indian government also continued same legacy post independence. Prime Minister Narendra Modi announced a shift in date of the budget, in November 2016. Therefore in 2017, the budget would be presented on February 1.

The budget session of the parliament is anticipated to commence from the second week of January. The early presentation and planning of the budget would help the government to get more time to efficiently implement financial decisions by April 1.

Second, Merger of Railway budget with Union budget-The union government made a drastic move by doing away from the 92-year-old practice of presenting a separate Railway budget ahead of the Union budget. Now, the railway and Union budget will be presented together. But the process of preparing the Railway budget would remain unchanged. A single appropriation bill would be drafted with the estimates of the Railway budget as well.

The rationale behind the move is to save time for the government by not having to hold consideration for two separate bills. This merger can be deemed as a part of the government’s budgetary exercise to complete it before March 3.

The merger will also help in facilitating the beginning of expenditure on public-funded schemes from April 1. The merger will help the Railways get rid of the annual dividend they have to pay for gross budgetary support from the government every year. Some sources reveal that the merger will help the cash-strapped Railways save about Rs 10,000 Cr annually.

However, after all these expectations and wishlist, it would be really interesting to see how the Budget 2017 turn up at 1st February.

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